NOL boss warns of industry shake-up

Shenzhen: The container shipping industry will go through a significant shake-up and the growth it has become accustomed to will never return, according to the boss of the world’s seventh largest containerline.

In a frank speech on day two of the TPM Asia conference in Shenzhen group president and ceo of NOL, Ng Yat Chung suggested the sector was set for huge changes. NOL runs containerline APL.

The industry is, Ng said, “in the middle of a deep downturn”.

Container shipping will not benefit from GDP growth going forward as it has done in the past, Ng said, noting that era of outsourcing to China was over as was the era of high consumption.

“The industry is clearly not sustainable – something has to give,” Ng warned.

On ship financing, Ng said: “The era of easy money in shipping is gone.” He expanded on this theme, noting: European banks who have been traditional funders of shipping … that part is gone. The German KG model is dead. So the era of easy money on which many carriers depend on, that mechanism is over. Of course the Korean and Chinese banks are stepping up but that will not be enough to cover the European banks anytime soon.”

Ng said that slow steaming would stay particularly as bunker costs will continue to rise – they have grown by 153% since January 2009, Ng said, adding: “The days of $400 a ton is not going to come back anytime soon.”

Ng believed the trend of consolidation in the industry would continue and was necessary, although consolidation would take time.

Concluding his speech, Ng said: “We expect frankly that carriers will be much more focused on efficiency, much more focused on costs and not market share. An industry shake-up is inevitable.”

The winners, he said, would be the ones with the right balance sheets.

In a q&a session afterwards Ng said he was optimistic that a rates war can be avoided, pointing out that carriers have been willing to withdraw capacity and that there has been a shift in carriers’ chartering strategies to short term charters to make for easier withdrawal of capacity.

“There is greater recognition that competition for market share is not a recipe for success,” the NOL boss said.

APL is in the midst of its largest newbuild program in its history with 34 newbuilds. [18/10/12]